Back in August, Saxo Bank’s Christopher Dembik noted that the United Kingdom was “more and more looking like an emerging market economy.” His logic was simple: in terms of fundamentals, the UK outlook displays the kind of economic vulnerability typical of the developing world, and the only thing insulating the country from a currency-crisis-IMF-adjustment loop was the ongoing willingness of market players to hold onto sterling holdings, likely on the basis of a lingering perception of UK economic resilience.

It didn’t take long for that perception to break down, as events since August have illustrated so starkly. The turning point – where market group-think shifted such that the UK’s macroeconomic challenges came into sharp relief – came in the form of a mini-budget from the then-newly-coronated prime minister, Liz Truss, which among other things sought to slash the income tax rate for top earners from 45 to 40 percent, squeezing government revenues at a time of COVID-related spending and large budget deficits.

The mini-budget thus marked the UK’s transition into full emerging market status, currency crisis and all. The sterling subsequently fell to new historical lows against the dollar as investors raced to dump their holdings. By the time the Truss government reversed course on its announced tax plans, the bond market had already been taken to the brink, with the Bank of England (BOE) reportedly being forced to intervene at one point in order to avoid a cascading collapse in pension funds.

Even with this policy U-turn and central bank intervention, the sterling remains down about 16% against the dollar over the year.